By Marcus Leach
Worries about the cost of going to court are preventing small and medium-sized businesses (SMEs) from enforcing their legal rights, new research has shown.
Yet many remain unaware that commercial disputes can be funded through Conditional Fee Agreements (CFAs), often called ‘no-win, no-fee’.
In a YouGov survey, carried out on behalf of John Kennedy Limited, the commission-free business dispute consultants, 52% of SME decision-makers cited cost as the single biggest factor that would prevent them from pursuing a legal dispute.
There was a huge gap between that and the next most cited answer, with 12% saying the hassle/effort of pursuing a dispute would most put them off, followed by the damage to business relationships (10%).
Yet 40% of decision-makers were unaware that they could pursue a commercial business dispute using a CFA, which allows businesses to pursue a legal case at no or greatly reduced cost.
Often called ‘no-win, no-fee’, a CFA is a risk-sharing agreement between a solicitor and a client, where they agree that all or some of the legal fees and expenses will only become payable if the client wins the case, and then they are usually recoverable from the losing side. This includes a “success fee”, which compensates the solicitor for taking the risk of not being paid.
Knowing that CFAs are available to businesses made a third (33%) more likely to pursue a legal claim.
However, some wrongly believe the old proverb ‘you get what you pay for’ applies when using a CFA; over a third of respondents (37%) felt they would get a better service if they paid a solicitor by the hour rather than on a CFA. Actually, while the hourly rates encourage inefficiency — because the longer a solicitor takes, the more they get paid — CFAs incentivise solicitors by giving them a stake in the outcome of the case.
Tina Morgan is a barrister and founder of John Kennedy Limited, which helps businesses start the legal process and has access to some of the UK’s leading law firms willing to act on a CFA.
“Businesses who think that pursuing a dispute is out of their reach should think again," she said.
"There are large reputable law firms who will share the risk of taking legal action with them and allow businesses proper access to justice. It also shows both the client and the other side that the solicitor thinks they have a strong chance of winning, otherwise they would not have agreed to work on a CFA in the first place.”
Over half of the survey’s respondents (53%) agreed that ‘no-win, no-fee’ allowed businesses access to justice.
“Businesses need to be aware of proposed changes to the way solicitors are paid in ‘no-win, no-fee’ cases, likely to come into effect late in 2012,” warns Tina.
Under controversial reforms currently going through Parliament in the Legal Aid, Sentencing and Punishment of Offenders Bill, solicitors will be prevented from claiming success fees from the losing side, which will instead be paid out of the damages and capped at 25%.
“This means the number of solicitors willing to work on a CFA will probably decrease,” she says, “but even then this will be a far more cost-effective means of pursuing a dispute than the traditional route of paying by the hour, win or lose — 75% of something is far better than 100% of nothing because you were afraid to make a claim in the first place.”
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